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It is a fact that ELSS, the tax saving mutual funds, have the shortest mandatory lock-in period as compared to other investment options available under Section 80C of Income Tax Act. For example, an ELSS has a lock-in period of three years, whereas a Public Provident Fund (PPF) account has 15 years of the lock-in period. However, ELSSs should not be considered a short-term investment product. Your investment horizon in ELSSs should be of at least five to seven years. Also, it is not advisable to take out money out of ELSS funds before 3 years. Consider ELSS funds for long term investment plans.

2) Risk

What puts off most of the new investors from ELSS is the fact that it invests mostly in stocks and hence carries a higher risk. But you can minimize the risk by having a long-time investment horizon in ELSS. And that's why it is advisable to keep investing in ELSS even after 3 years of the lock-in period. The only way to beat the volatility of the market and to make superior returns from stocks is by staying invested for a long period.

3) Equity investment experience

ELSS is an ideal way to begin your investment in the equity market. Since ELSS come with a mandatory lock-in period of three years, it gives investors a chance to get used to the volatility of the stock market. It would be a good equity market debut for many investors for their future investment in other equity mutual fund schemes.

4) Section 80C allows only Rs 1.5 lakh of investment

The Section 80C of the Income Tax Act allows you to claim the tax deduction on investment up to Rs 1.5 lakh only. The Section 80C is an overcrowded section where many investment options qualify for tax deduction, for example, PPF, EPF, FD, NPS, NSC, ULIP etc. So, you need to calculate before finalizing the amount you would be investing in ELSS funds because, if you invest more than the required amount, it won't give you extra deduction under Section 80C.

5) Be realistic about returns

Yes, ELSSs hold strong potential to offer good returns because they invest mostly in equity stocks. However, you have to be realistic about your expectation from the returns. For better returns, you need to be invested for a longer term.

How safe is investing in ELSS funds?

ELSS funds are one of safe ways to have exposure in equity market compared to directly investing in Equities. It is advisable to do a SIP (Systematic Investment Plan) in ELSS rather than investing a lumpsum amount as it would factor in the market fluctuations and reduces the risk.

Why ELSS is considered as a good investment option?

Equity Linked Savings Scheme, commonly called ELSS is a type of diversified equity mutual fund which is qualified for tax exemption under section 80C of the I-T Act. It offers the twin-advantage of capital appreciation and tax benefits. Hence, ELSS makes a very good investment option for tax saving as well as investment.

Is maturity of ELSS taxable or not?

Equity Linked Saving Schemes (ELSS) qualify for tax deductions of up to Rs 1.5 lakh under Section 80C of Income Tax Act.